20 N.Y. 268 (1859)
Holly loaned a sum of money to Fox for a single day. At the moment of the advance Holly instructed Fox to repay that exact sum directly to Lawrence. Fox accepted the loan and expressly promised Holly that he would pay the amount to Lawrence. A third person who was present heard Holly give these directions concerning payment of the funds then being advanced.
Lawrence later commenced an action against Fox to recover the sum.1 At trial the defendant objected that the testimony of the person who overheard Holly's directions constituted inadmissible hearsay. The defendant further argued that any promise was void for lack of consideration and that no privity existed between Lawrence and Fox because the undertaking had been made solely to Holly.2
The trial court overruled these objections and entered judgment for the plaintiff.3 On appeal the Supreme Court of New York affirmed that judgment.4
Whether the testimony of the person present who heard Holly's declarations directing payment of the advanced money was competent evidence?5
Evidence of the debtor's declarations directing payment to the creditor is competent to establish the debtor-creditor relation between the original parties when offered to prove the underlying transaction.6
Yes. Holly advanced a sum of money to Fox as a loan for one day and at the time of the advance directed Fox to pay that sum to Lawrence.7 A person present at the transaction heard Holly give these directions regarding payment of the money then being advanced to Fox.8 This testimony is competent because it would be received without objection if Holly had sued Fox for recovery of the loan or if Fox had paid Lawrence and Holly had later sued Fox.9
The evidence establishes the relation of debtor and creditor between Holly and Lawrence.10
The testimony was competent evidence.11
Whether Fox's promise to pay the sum to Lawrence was void for want of consideration?12
A promise to pay the debt of another is supported by valid consideration when the promisor receives value such as a loan from the debtor in exchange for the undertaking.13
No. Holly advanced a sum of money to Fox as a loan for one day and Fox promised Holly that he would pay the amount to Lawrence.1415 This transaction mirrors the sale of hay in exchange for a promise to pay a third-party debt.16 Receipt of the loan by Fox supplied ample consideration for the promise to pay Lawrence.17
Fox's promise to pay the sum to Lawrence was not void for want of consideration.18
Whether privity of contract existed between Lawrence and Fox when the promise was made only to Holly?19
When a promise is made to the debtor upon consideration advanced by the debtor to pay the creditor, the law implies a promise to the creditor and establishes privity between the promisor and the third-party beneficiary.20
Yes. Fox promised Holly that he would pay the amount to Lawrence after receiving the loan from Holly.21 Although the promise was made to Holly and not expressly to Lawrence, the consideration received by Fox and the duty created made it the defendant's obligation to pay Lawrence.22
This implied the promise and established privity just as if Lawrence had been made a trustee of property to pay the debt.23
Privity of contract existed between Lawrence and Fox when the promise was made only to Holly.24
Related opinions on this issue
Justice Comstock dissented on the ground that no privity existed because the plaintiff had nothing to do with the promise and the consideration did not proceed from him.25 Holly could have countermanded the direction at any time, and the entire arrangement remained under the exclusive control of Holly and Fox.26 If Fox had paid Holly instead, the debt would have been discharged, and Holly could have released or assigned the demand, showing that Lawrence possessed no legal interest in the undertaking itself.27
Whether a third party for whose benefit a promise was made may maintain an action on that promise?28
A third person may maintain an action upon a promise made to another for his benefit when the promise is founded upon consideration advanced by the debtor.29
Yes. Holly directed Fox to pay the loaned sum to Lawrence and Fox promised Holly that he would pay the amount to Lawrence.30 New York decisions from an early period have established that where one person makes a promise to another for the benefit of a third person, that third person may maintain an action upon it.31
The law operates on the act of the parties to create the duty, establish privity, and imply the promise on which the action is founded.32
A third party for whose benefit a promise was made may maintain an action on that promise.33
Related opinions on this issue
Justice Comstock concluded that the plaintiff cannot maintain the action because the right of a third person to sue upon such a promise rests on no sound principle of law.34 The arrangement was between Holly and Fox under their exclusive control.35 Extending the doctrine beyond cases involving an actual trust fund would violate plain rules of law.36
English authorities and the later Massachusetts decision in Mellen v. Whipple confirm that no action lies for a stranger to the consideration and promise.37